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Tax payers foot the bill for Software Compliance

Reported misunderstandings of IBM licensing rules and problems with visibility of software usage across its 6,800 employees has cost Fresno County in California US $2.3 million in a settlement with IBM.

Although the final settlement figure was reduced from an original US $4.5 million, the unbudgeted cost is still substantial and should stand as a warning sign to other organizations that do not have an effective Software Asset Management (SAM) program in place.

For a commercial organization, US $2.3 million in unbudgeted cost would be at best inconvenient. However, for a public sector organization that owes it to some 930,000 citizens to spend their tax dollars responsibly, it’s impossible to shrug off.

Nothing out of the ordinary

According to one of Snow’s IBM licensing experts, Ruben Claes, the settlement is “nothing out of the ordinary” and no more than a “nice deal” for IBM, who regularly reap bigger figures thanks to their worldwide audit activities.

In a wider context, given Fresno County employs nearly 7,000 staff and has an annual wage bill of some US $350 million, the IBM settlement isn’t all that big (0.3% to be precise, if you consider the US $2.3 million was for two years).

But looking at it another way, that US $2.3 million could have paid for an additional 45 full-time employees, or perhaps could have funded a school sports program, or helped the homeless. Or perhaps it could have been spent developing better IT systems that could drive indirect value to the residents of Fresno County.

The point is that there is no shortage of other ways that money could have been spent. But due to misunderstandings and system failures, it went to a software vendor that already makes around US $6.8 billion per quarter.

I expect many Fresno County residents would say their need is greater than IBM’s. But licensing rules are rules; get them wrong and the cost can be substantial.

Accepting What Went Wrong

Robert Bash, Chief Information Officer at Fresno County stated in an interview that “[The Service Department] were supposed to do software reconciliations as [they] went along, and that wasn’t happening.” 1 It is completely understandable why this happened. It is the same for countless organizations across the globe. Things get put off, good practice and processes aren’t adhered to (if there are indeed processes) and gradually the small changes that should have been made amount to big costs.

Moving forward, Fresno County is reportedly moving to a system of central procurement and license management for its various departments. That sounds like a great move.

And hopefully it will include the adoption of a suitable Software Asset Management (SAM) platform that can cover all the major platforms and vendors employed across the County’s IT environment.

In fact, Software Asset Management can be the key to lower software costs, not just effective audit defense. Industry analysts Gartner recently published a research paper which states that organizations can reduce their software spend by as much as 30% in the first 12 months following the adoption of a SAM program. Read our guide to using SAM to reduce IBM license spend in 5 steps.

Given that we take the average software spend per employee as $5,000 per year, even if we say that it’s possible to realize a conservative cost reduction of 15% compared to Gartner’s 30%, that is $750 per employee. So a 10,000 user organization could be in the black in the order of $7.5 million.

Act Now

In conclusion, you shouldn’t wait for your organization to be hit by a hefty bill from an audit because it WILL happen. It could be from IBM but it could be one of many other software vendors. Instead, get proactive. Start making changes, adopt a Software Asset Management process and solution to help you gain full control and make cost savings. Do all of that right and in time and your organization could be saving millions, not scrabbling around to cover unbudgeted costs.

Snow is pleased to offer you complimentary access to this Gartner paper for a strictly limited time only. Download it from here.